Africa GreenCo aims to increase private sector investment in energy generation in sub-Saharan Africa by mitigating the credit risks associated with the current lack of creditworthy offtakers. Current weak financial position of utilities and limited choice of an alternate buyer in case of utility default deters private capital.
An intermediary aggregator between buyers and sellers can help attract sustainable investments in the power sector on the strength of a multi-buyer model. Its role as a financially sustainable intermediary offtaker and power trading company can also stimulate regional electricity trading and facilitate more efficient use of available and new resources by optimising them on a regional basis.
Through its activities Africa GreenCo will increase the supply of, and the demand for, finance for energy projects, and mobilize private sector capital more quickly towards critical and transformative capacity additions, reducing pressure on utilities as well as financial liabilities for sovereign governments.
- Lack of creditworthy counterparties for generation projects scale up
- Rehabilitation of utilities is key but sustainable and material improvements can only occur in the medium to long term
- The current project-by-project approach to electrification of the continent is unsustainable
- The main issues created by the current funding model are that:
- Support through existing instruments is not sufficient to address funding gap
- Credit enhancement of projects on a one-off basis adds cost and delays
- No single project is able to shift the attitude of commercial investors to bankability; a systemic and structural change is required
- Putting the burden on governments to provide explicit and implicit guarantees or counter-guarantees shifts the creditworthiness issue to the sovereign level
Unlike current development efforts which mostly focus on project preparation, advocacy, capacity building or on the financing components for renewable energy generation, Africa GreenCo proposes an introduction of a principal in the market which addresses the core issue of creditworthiness of off-takers and the lack of a viable power market to sell electricity production.
The envisioned entity is an ambitious attempt to help increase the liquidity and scale of regional power trade and develop the power pools in sub-Saharan Africa by providing them with the first ever government co-owned, independently managed and financially sustainable electricity service provider capable of developing a fair and standardised electricity market.